The deepening trade and technology war between the US and China has sent global stock markets sharply lower and prompted a warning from the IMF of the increasing risks to the global economy.

Shares fell sharply in Asia, Europe and North America on a day that saw investors alarmed by the intensifying war of words between Washington and Beijing, poor news on the American economy, and political chaos in Britain.

Hours after the Japanese conglomerate Panasonic joined the list of companies cutting its ties with the Chinese telecoms giant Huawei, the US secretary of state Mike Pompeo on Thursday accused Huawei’s chief executive of lying when he said the company had no links to China’s communist government.

“If the United States wants to continue trade talks, they should show sincerity and correct their wrong actions. Negotiations can only continue on the basis of equality and mutual respect,” Chinese commerce ministry spokesman Gao Feng said. “We will closely monitor relevant developments and prepare necessary responses.”

However, Trump said later on Thursday that US complaints against Huawei might be resolved within the framework of a US-China trade deal, while at the same time calling the Chinese telecommunications giant “very dangerous”.

“You look at what they’ve done from a security standpoint, from a military standpoint, it’s very dangerous,” Trump said in remarks at the White House. “If we made a deal, I could imagine Huawei being possibly included in some form or some part of it.”

In London, the FTSE 100 index of leading companies closed 103 points lower at 7,231, a fall of 1.4%. Amid speculation that Theresa May’s departure would make a no-deal Brexit more likely, the pound fell by half a cent against the US dollar to just over $1.26 – its lowest level since early January.

Wall Street’s Dow Jones industrial average closed down 286 points, or 1.1%, with the mood not helped by a snapshot of US business activity dropping to its lowest level in three years. Both France’s CAC index and the German DAX lost about 1.7% of their value.

The IMF used a blog co-authored by its chief economist, Gita Gopinath, to express its concerns. “US-China trade tensions have negatively affected consumers as well as many producers in both countries. The tariffs have reduced trade between the US and China, but the bilateral trade deficit remains broadly unchanged,” the IMF said.

“While the impact on global growth is relatively modest at this time, the latest escalation could significantly dent business and financial market sentiment, disrupt global supply chains, and jeopardise the projected recovery in global growth in 2019.”

Roberto Azevêdo, director general of the World Trade Organization, said the US-China trade war was hurting the global economy.

Speaking on CNBC, Azevêdo said that “$580bn [£458bn] of restrictive measures” were introduced in the last year, seven times more than the previous year.

“This is holding back investors, this is holding back consumers, and of course it is having an impact on the expansion of the global economy. Everyone loses … every single country will lose unless we find a solution for this.”

Despite the warnings from the IMF and the WTO, markets fear that Washington is preparing for a protracted battle with China for global technological supremacy.

Seema Shah, analyst at asset management firm Principal Global Investors, said: “While a compromise on tariffs is still possible, investors should prepare for a longer, more hostile, technology war – with some meaningful collateral damage.

“First, when it comes to technology and defence related issues, not only is there a fair degree of consensus across Congress to be tough on China, but many large economies share America’s concerns about China’s practices.

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“Second, US demands around technology and defence will be very difficult to meet given that they are focused on containing China’s aspirations to be a global technology leader, and therefore too existential for China to concede.”

Huawei has repeatedly denied it is controlled by the Chinese government, military or intelligence services, but Pompeo rejected the assertions by the company’s chief executive, Ren Zhengfei, that user secrets were safe.

“That’s just false. To say that they don’t work with the Chinese government is a false statement. He is required by Chinese law to do that,” Pompeo said.

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